SUMMARY: A deep analysis of The Guardian’s membership model compared to The New York Times and The Washington Post traditional digital subscription model reveals a successful model that better fit its mission and values than a paywall.

1. STRATEGY. Digital news darlings diversify to reader revenue with memberships, but not with paywalls

Membership drive: Inspired by The Guardian in the United Kingdom, popular digital upstarts such as The HuffPost and BuzzFeed News in the United States launched memberships programmes but kept access to all content free. Should others consider memberships instead of paywalls?

Mission: “Our membership programme is not a paywall because we believe our journalism should remain freely available to everyone — not just those who can afford to pay,” explained Lydia Polgreen, the editor-in-chief of The HuffPost.

Product line: For US$5.99/month or US$99.99/year, the HuffPost’s “supporters” and “super-fans” get an ad-free experience in an app, members-only newsletters, a tool to save articles for later reading, a branded T-shirt, and discounts for other merchandise. BuzzFeed News’ line is similar with US$5/month and US$100/year plans.

Pivot: Digital subscriptions and e-commerce are the new focus of the HuffPost’s owner, Verizon Media (formerly known as Oath), and of BuzzFeed as they turn away from advertising-centric strategies and cut costs under pressure of investors.

Heavyweights: Verizon Media reached 200 million unique visitors in the United States in March, per Comscore, with Yahoo, AOL, HuffPost, and other sites. BuzzFeed’s brands attracted 75 million.

Compare that to 102 million-strong U.S. reach of The New York Times or 86 million of The Washington Post, both having successful digital subscription businesses built behind paywalls.

2. CASE: What’s so inspiring in the membership model of The Guardian?

The Guardian’s model: Since 2014, The Guardian has built a worldwide supporter base of one million, and last year its reader revenues were higher than advertising revenues, declared its Richard Furness at the recent INMA Media Subscriptions in Stockholm.

Mission: The masthead’s slogan of The Guardian reads: “Available for everyone, funded by readers.”

Single vs. recurring payments: Of one million supporters, 600,000 contributed once, 340,000 signed up for a membership and recurring contributions, and 230,000 bought a print or digital subscription.

Product line: Members’ and subscribers’ benefits are different. For £1,200/year, “patrons” get access to exclusive events, backstage tours, member-only newsletters and, if they commit to double the contribution, access to a morning editorial conference. For £5.99-£11.99/month, “subscribers” get an upgraded user experience in an app (two extra curated feeds, ad-free) or an e-paper edition.

Global outreach: In 2018, 70% of supporters came from outside the UK. The biggest foreign markets were the United States, Australia, Canada, and Germany. Foreign supporters preferred single contributions, while core, UK-based readers more often chose memberships or subscriptions.

3. BENCHMARKS: Businesswise, how successful is The Guardian’s membership approach vs. its peers with paywalls?

Time to reach one million paying customers looks similar to its peers: It took four years for The Guardian to reach a one-million-supporters milestone (2014-2018). Similarly, it took four years to reach one million online subscribers for The New York Times (2011-2015) and The Washington Post (2013-2017), per their press releases.

Caveat: It’s not clear whether The Guardian’s one-million figure is the number of people who paid in 2018 or the total number of those paying at least once since 2014. The figure might also include print subscribers.

Single supporters though are not equal to subscribers. The Guardian’s average lifetime value is lower (per Richard Furness, the average contribution is just £10).

If we compare apples to apples, The Guardian’s 570,000 members and subscribers combined at the end of 2018 suggest that its membership model acquired customers about half the rate of the paywalls of the Times and The Post, while enjoying comparable free visitor bases worldwide.

Conversion rate is much lower than its peers: With 157 million unique visitors worldwide, The Guardian’s ratio of paying vs. total users is 0.6%, or 0.3% if we count members and subscribers only.

Compare this ratio to 1.3% for The New York Times in 2015, when it had hit one million subscribers, and 1.1% for The Washington Post in 2017.

Revenue per user is much lower than its peers: Based on the reported revenue of Guardian & News Media Ltd. for 2018, I can estimate its online reader revenue was about US$74.5 (half of the total digital revenue).

When The Times hit its one-million milestone in 2015, it made US$192 million from digital subscriptions. So, The Guardian enjoyed a 2.5 times lower average annual revenue per user than the Times did, or about US$74.5 vs. US$192.

Success or fail? In my opinion: a success. The Guardian has chosen a unique membership model believed to better fit its mission and values than a paywall. It outgrew its U.K. peers such as The Times of London (256,000 digital subscribers in its paywall’s eighth year). It reached most paying customers beyond the U.K., entering the global champions’ league.

The money raised helped The Guardian fund its mission and escape the pressures of making ends meet just with the ads. Additionally, its unique model inspired others such as HuffPost or BuzzFeed, similarly to how The New York Times in the past inspired many former newspapers to launch paywalls.

Locked content converts better. Rejecting an idea of a paywall, The Guardian made a trade-off between its journalism ideals and a business: its paying customer base and revenue did not grow as fast as its peers in the United States. A study of hundreds of Piano customers shared by CEO Trevor Kaufman in Stockholm confirms the insight. The subscription software company analysed sites running both closable models such as premium and hard paywalls, as well as non-closable models such as meters or memberships. It found that locked content had a median monthly conversion rate higher 14 times.

Time in market counts. The Guardian has never stopped experimenting with its model, and in 2018 introduced subscriptions to its mobile apps in 2018 and launched new extra-high patron tiers. Learning about a new business takes time, the data shows. Based on the progress of hundreds of paywalls, Piano found the greatest correlation to success measured in the average number of monthly new subscription additions is time in market: “Nine out of 10 Piano customers consistently do better and better at acquisition each quarter after launch.”

“Funding journalism” as a benefit appeals to a segment of online news customers only. In the Reuters Institute’s survey of paying news customers in 37 countries, fewer people said they paid to help fund journalism (13%) than paid to get an access to a mobile app (32%), exclusive news (17%), or paid for quality (16%).

To grow, The Guardian expanded its product line from memberships targeting fans to app subscriptions targeting heavy users. While every article can be found online for free, the app restricts access to user experiences such as Live news and Discover features feeds.

Recurring revenue is the holy grail of business for a reason. The high share of single payers among the supporter base depresses their lifetime value and overall reader revenue of The Guardian. In her Membership Economy, Robbie Baxter wrote that “the forever transaction” incentivises businesses to focus on quality of their relationship with customers and provide the best experience in the long term. Indeed, the subscription pricing model is aligned with newsrooms’ needs: It helps fund a variety of topics in the bundle and not just the most popular, and it lets invest long term in the coverage valued by subscribers

5. BUSINESS MODEL. People label many different concepts as “memberships.” How to make sense of them?

One word, many meanings: The Guardian calls its model a “membership” and The Wall Street Journal does too. The former has no paywall, the latter has a paywall since 1996 (sic!). The Times of India has a membership programme called Times Prime that includes subscriptions to food delivery and online music. New York University’s The Membership Puzzle researcher Emily Goligoski found 160 news organisations around the world developing revenue upon engagement with its audiences, and many call their model a “news membership.”

Differentiation strategy: “News membership” appears to be a business strategy of aligning products and services to broad needs of news customers, on a recurrent basis, to achieve the news organisation’s goals of mission and sustainability. Membership features not only differentiated products and services but an adjusted operating model to deliver them — and relevant ways to measure and capture value. Therefore, the membership strategy may lead to creation of a whole new business model.

Let’s break it down.

Value proposition: News organisations pursuing a membership strategy such as The Guardian recognise that customers have needs beyond access to information and knowledge. Based on a classic framework of media gratifications, users engage with media seeking also pleasure, status, a connection with others or escape. Membership organisations fulfil the needs by providing them a purpose of giving, co-creation opportunities, interactions with a community, and other non-content benefits.

Operating model: Encouraging audiences to participate in planning, reporting or news analysis requires significant changes in the way newsrooms operates, per the Membership Puzzle. Guiding and leading communities is a different work than managing customers’ accounts. Identity or cause-driven marketing requires different mix and talents. In the writings of Robbie Baxter and Emily Goligoski, membership is elevated to an ideology informing all decision-making, including content, product and marketing.

Value capture: Membership programmes such as the one at The Guardian differentiate between payers and beneficiaries in a similar manner to non-profit organisations, borrowing fund raising tactics such as donations, or patronages. While the profitability of relationships with members is measured with lifetime value, similarly to subscription businesses, other metrics are sought after.

Professor V. Kumar, author of Profitable Customer Engagement, proposes to measure, for instance, value of customer’s knowledge, an attitude toward a brand and its values, customer’s referrals, or her influence on others via word of mouth.

Today’s newsletter is written by Grzegorz (Greg) Piechota, Researcher-In-Residence at INMA, based in Oxford, England. Every month, I share results of my original research, notes from visits to digital subscription leaders, reflections on talks at conferences, and my favourite readings. Previous editions are archived online:

About Grzegorz Piechota

Grzegorz (Greg) Piechota is Researcher-In-Residence at the International News Media Association (INMA). He also serves as a senior researcher at Oxford University and Harvard Business School. He may be reached at grzegorz.piechota@inma.org.